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Spitzer says 4 insurers can't pay some contingents


NEW YORK--Four insurers that had previously reached settlements with New York Attorney General Eliot Spitzer barring them from paying contingent commissions on excess casualty business can no longer pay the commissions on six additional lines of coverage, including boiler and machinery and financial guarantee business, Mr. Spitzer's office announced Thursday.

Under the terms of their earlier settlements over broker compensation practices, the insurers--ACE Ltd., American International Group Inc., St. Paul Travelers Cos. Inc. and Zurich American Insurance Co. Inc.--agreed to stop paying contingent commissions on any line, product or segment of business if insurers that represent 65% of the gross written premiums on that line were not paying such commissions or were to reach similar settlements. The insurers also agreed they would immediately stop paying contingent commissions on excess casualty coverage through 2008, after which contingents on that line would be subject to the 65% rule.

In letters to the four insurers, Mr. Spitzer said that his department's analysis of data provided for 2005 by A.M. Best Co. Inc. showed that the 65% "tipping point" had been reached in several lines and that, as a result, the insurers could no longer pay contingent commissions on those lines beginning Jan. 1, 2007. Those lines are:

  • Homeowners multiperil;
  • Private passenger automobile physical damage;
  • Private passenger auto no-fault;
  • Other private passenger auto liability;
  • Boiler and machinery; and
  • Financial guarantee
Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined in the notices, Mr. Spitzer noted in a statement.

A spokeswoman for St. Paul, Minn.-based St. Paul Travelers said the insurer is complying with the settlement. "We remain committed to providing our agents with an attractive overall compensation opportunity and we will continue to offer a competitive compensation program," she added.

"Zurich has received a notice from the New York attorney general, is reviewing it and will take appropriate action consistent with the terms of its agreement with the NYAG and Connecticut and Illinois attorneys general," the Schaumburg, Ill.-based insurer said in a statement.

"We are complying with the terms of the settlement we reached in February," a spokesman for AIG said.

ACE declined to comment.

Both ACE and AIG ceased paying contingent commissions in 2004 in the wake of Mr. Spitzer's suit against Marsh & McLennan Cos. Inc.

ACE, AIG, St. Paul Travelers and Zurich this year entered into separate settlements with Mr. Spitzer and other authorities to resolve charges that they had conspired with brokerage Marsh & McLennan Cos. Inc. to rig bids and steer business.

Several of the world's largest brokerages agreed to cease collecting contingent commissions in the wake of Mr. Spitzer's probe, though many middle-market and smaller brokers continue to accept such compensation.